China’s economic slowdown matched analysts’ expectations, but the end result still disappointed investors – despite the fact that they knew it was coming.
The good news for any idealists out there is that Chinese and U.S. officials are meeting at the end of this month with the potential to ease fears of an escalating trade war. Trump has made it clear that he’s ready to make a deal. Should he follow the advice put forth by Steven Mnuchin, the U.S. Treasury Secretary, both superpowers may be able to avoid a tariff hike on March 1st that would raise duties by $200 Billion on Chinese products.
Washington insiders hint at talks leaning that way but even if negotiations go smoothly, many business leaders feel this agreement won’t be solid enough to defuse trade tensions in the long-term. TS Lombard’s chairman, Jonathan Fenby, fears that the upcoming talks will only serve as a band-aid for the current issue:
Vice-Premier Liu He will arrive in the US with an array of gifts, including measures such as a reduction in excess car duties and increased purchases of farm products and energy as well as assurances that Beijing intends to make more moves on market opening, intellectual property, and technology transfer. But the structural issues remain and present fundamental difficulties.
Fenby went on to say, “In the end, it will all depend on how Trump decides between a short-term outcome and longer-term aims, which will involve broader domestic political calculations." Investors may have good reason to be worried in regards to the upcoming China/U.S. meeting. This potential trade war truce has the potential to send equities flying to the point where they could even rival some of the post-Christmas index gains.
Even assuming we do see a positive outcome at the meeting on January 30th, it probably won’t be enough to pull us out of our current bear market. NASDAQ, Dow, and the S&P 500 are all encountering resistance and unless something significant happens in the next week we could be looking at a massive market correction.
That being said, a lot has to happen before the market is anywhere near long-term reversal territory, and any investors who fall for the “bull trap” will pay for it dearly. Optimism may be a good practice in day to day life, but when it comes to trading, it’s better to be a realist.
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